As of June 1, 2012 the Treasury Department announced the following changes to the HAFA Program (Home Affordability Foreclosure Alternative):
- The program has been extended to December 31, 2013. The short sale can be initiated up until this time as long as the closing date happens on or before September 30, 2014.
- Previously only owner occupied properties where eligible. Now they have extended the program to non-owner occupied properties which include rentals, second homes and vacant properties. However, the property cannot be owned or secured by a business entity.
- HAFA relocation assistance of $3,000 will be paid to the primary resident whether it be the borrower or tenant providing that the property be vacated upon closing of the transaction. Vacant properties do not qualify for HAFA relocation assistance.
- If HAFA relocation assistance is provided, the HUD must be reflected appropriately.
- If there is a tenant living on the property, it is the borrowers responsibility to ensure the property is vacated by close of escrow.
For more information on HAFA guidelines, go to: http://www.makinghomeaffordable.gov/programs/exit-gracefully/Pages/hafa.aspx. Or feel free to contact me, and I would be glad to answer any questions.
Better Homes & Gardens Real Estate
The question I hear a lot is “Can the 2nd lien holder come after me for the balance owed?”. The answer is “YES” in certain situations. Let me explain. In a foreclosure situation, the lender can most definitely come after you if your lien is consider “recourse” debt vs. “non-recourse” debt. The essential difference between a recourse and non-recourse loan has to do with which assets a lender can go after if a borrower fails to repay a loan. As a matter of principle, borrowers almost always favor non-recourse loans, while lenders almost always favor recourse loans. In both types of loans, the lender is allowed to seize any assets that were used as collateral to secure the loan. In most cases, the collateral is the asset that was purchased by the loan. For example, in both recourse and non-recourse mortgages, the lender would be able to seize and sell the house to pay off the loan if the borrower defaults.
The difference comes if money is still owed after the collateral is seized and sold. In a “recourse” loan, the lender can go after the borrower’s other assets or sue to have his or her wages garnished. In a non-recourse mortgage, however, the lender is out of luck. If the asset does not sell for at least what the borrower owes, the lender must absorb the difference and walk away. You may also her the term “money purchase loan”. This is the same as “non-recourse” debt. This means this is the money you used to purchase the home. If you refinanced or have a home equity line, these loans are considered “recourse” debt.
I am starting to hear from a number of colleagues that their clients are getting letters in the mail from collectors asking to begin payment of their “recourse” debt several years after a foreclosure. I think we will start seeing a lot more of this which is why it is extremely important to understand your options with a foreclosure vs. a short sale.
Senate Bill 458 (SB458) was passed in July of last year (2011) prohibiting lenders from a deficiency judgement against the first or second lien holders regardless of whether or not the debt is considered a “recourse” debt. This is a huge win for homeowners who can no longer pay their mortgage and have no other options.
For anyone considering letting their home go to foreclosure vs. a short sale, I strongly urge you to consult with an attorney and CPA. I would be glad to give recommendations if you live in the Sacramento area.
Lyon Real Estate
Serving the Greater Sacramento Area
Many people are getting conflicting information about the pros and cons of doing a short sale vs. foreclosure. It is our job as Realtors to ensure our clients get the right information to make the best decision possible for their situation. This means making sure our clients consult with an attorney/CPA prior to engaging with their Realtor as they are experts in their field. Once our clients have met with an attorney/CPA, we can provide supporting documentation and scenarios to educate them prior to our first meeting.
Knowledge is power, and by this time your client will have all the pertinent information to begin a discussion about how to move forward with their Realtor! Of course, we can share our experiences of what our previous clients have done that worked, but every situation is different. I would hate to give advice that negatively impacted my client for years to come!
Posted by: Sheri Negri